Walmart may move out of Flipkart after changes in FDI norms for e-commerce firms, warns Morgan Stanley

  • The US multinational investment bank in its 4 February report stated that 'the exit is likely

  • Flipkart on 1 February said it was disappointed with the government's decision to implement the changes in rules

  • While Flipkart doesn't hold equity interest in its sellers, changed rules could affect selection available on the platform

The revised e-commerce deadline becoming effective from 1 February 2019 has led to changes in products and services  offered by e-commerce majors Flipkart and Amazon. Perhaps, this is a dark omen. For, Morgan Stanley has reportedly hinted that Walmart may quit Flipkart in the absence of profitability in the long-run, according to media reports.

Morgan Stanley, in its 4 February report stated that Walmart's 'exit is likely, not completely out of the question, with the Indian e-commerce market becoming more complicated”, said a report in The Economic Times.

Flipkart might require to remove 25 percent of its products from its site following the new FDI rules for the e-commerce firms, the report said, citing Morgan Stanley.

 Walmart may move out of Flipkart after changes in FDI norms for e-commerce firms, warns Morgan Stanley

Representational image. Reuters

Walmart-backed Flipkart on 1 February had said it was disappointed with the government's decision to implement the changes in rules for e-commerce companies with foreign investment in "haste", reported PTI.

The Bengaluru-based company said that it remains committed to compliance "despite the significant work that is required to change our supply chains and systems".

The new regulations announced in December — under Press Note 2 — would bar online marketplaces with foreign investments from selling products of the companies where they hold stakes as well as ban exclusive marketing arrangements.

Accordingly, products from sellers like Cloudtail and Appario — that have equity investment from Amazon — have been taken off from Amazon's platform.

Flipkart scurried to re-align their platforms to comply with the new FDI rules that came into effect on 1 February, with Amazon.in removing a number of products, including mobile accessories and batteries, from its platform.

A quick search for various products from 'AmazonBasics' showed that the items were "currently unavailable". Other Amazon products like Echo range of smart speakers were initially taken off, but later returned on the platform through sellers like Hariom Communication.

The wait period for Echo speakers is now running anywhere between a fortnight to over a month. Previously, some of these products were available for delivery within a day or two.

According to sources, while Flipkart doesn't hold equity interest in its sellers, the changed rules could affect selection available on the platform in the coming weeks as existing sellers do procure items from its wholesale unit.

Industry experts pointed out that many partnerships between these e-commerce giants and their sellers are being tweaked to ensure that the online marketplaces are in compliance with the new rules.

Last month, Flipkart had told the government that the company faces the risk of “significant customer disruption” if the implementation of new curbs for e-commerce is not delayed by six months, reported Reuters.

In a letter to industries department earlier this month, Flipkart chief executive Kalyan Krishnamurthy said the rules required the company to assess “all elements” of its business operations, according to a person privy to the communication.

“Redesigning numerous elements of our technology systems to ensure that we can validate and evidence our compliance, in such a compressed period of time, has caused us to divert significant resources,” Krishnamurthy wrote in the letter. The new curbs were only announced on 26 December.

With inputs from agencies

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Updated Date: Feb 05, 2019 14:37:36 IST